We thought slow foot traffic early in the month was indicative of a softer month than Aug as Macau headed into the holiday filled October. However, VIP, high end Mass, and high hold percentages are contributing to a strong Sep.



Following a casino walk through on 9/10/09, my Macau guys reported slow foot traffic.  Apparently, Mass business has picked up considerably - especially over the last two weekends - while VIP has been very strong all month.  Through 9/20 the month was up about 60% in year-over-year revenues according to reports out of Macau, off of an easy comparison.  Mass is definitely strong but it looks like most of the gain is coming from VIP, as can be seen by our estimated market shares in the following table. We are also hearing that hold percentage is high so far versus a low hold percentage in September 2008.




SJM, Crown, and Galaxy, all VIP houses, increased market share while LVS (the bigest market share loser) and MGM lost share.  The rest of the month will probably be slow given the proximity to the holidays in October, including the 60th anniversary of the communist takeover in China.

Chart of The Day: Burning The Buck

While it’s shocking and amazing that our President can do that many TV appearances in 48 hours and not talk about this chart, don’t bet on our Treasury Secretary saying anything about it any time soon either. Today, at $76.11 (US Dollar Index) America’s currency is crashing to new lows. All the while, America’s said financial “fiduciaries” are being willfully blind to this real-time global macro event.


The marked-to-market, Global Financial System, fortunately, must not be as stupid as Timmy Geithner thinks Americans are. Everyone with bucks is seemingly blowing them out again today. This assures a setup for the G-20 meetings in Pittsburgh where the world’s economic power is set up to shift.


The Chinese, the Russians, the Germans, the Australians – they’ll all be there, calling for the same thing. A diversification away from the US Dollar serving as the worlds Reserve Currency. No more Madoff. No more Stanford. No more Japanese style ZERO rates of return for your citizenry and creditors alike every time your stock market goes down.


From Bush to Obama, fully loaded with the most politicized financial system the US Government has ever overseen, does the world trust the US currency? The answer is in this chart. Price charts don’t lie; people do.



Keith R. McCullough
Chief Executive Officer


Chart of The Day: Burning The Buck - a1



SEPTEMBER 22, 2009




Recently Announced Retail/Apparel IPO’s


While Dollar General’s impending IPO is likely one of the largest and most visible IPO’s on the calendar, it is worth noting that there are a handful of other apparel/retail companies lined up to go public in the coming months. For now, the list is as global as we’ve seen in a long time, but we suspect many U.S. private equity firms will be watching closely to see how these offerings fare as they too contemplate monetizing some of their “peak-market” acquisitions.


  • Rue 21 (US)- 500 store specialty chain targeting 11-17 year old men and women. Merchandise is value-priced and concept is focused on small and middle markets. Sanders Karp & Megrue are the majority shareholders.
  • Dollarama (Canada)- 600 unit Canadian dollar store. Originally acquired by Bain in 2004.
  • Dollar General (US)- 8,500 store deep-discount retailer currently owned by KKR, GS Capital Partners, and Citigroup.
  • Yoox (Italy) Italian multi-brand luxury e-commerce retailer serving 28 countries. Backed by Benchmark Capital.
  • Myer (Australia) Largest department store in Australia currently owned by TPG.
  • Peak Sport (Hong Kong) Chinese sportswear maker sponsoring several NBA Players. May raise as much as HK$1.9 billion ($246 million) in a Hong Kong initial public offering, according to a sales document. 




Some Notable Call Outs


  • Despite the large amount of growth for American brands in China, local companies are not sitting still. Li Ning, China’s largest domestic manufacturer of athletic apparel and footwear hired Portland based design firm, Ziba, to overhaul the brand. The company hopes to not only compete more effectively with Nike’s push into China but to also take the Li Ning brand outside of its domestic market. Ziba has been working on the rebranding project in secrecy for nearly two years.


  • Improving momentum in PVH’s retail business continues, with same store sales currently tracking up 3-4% in September. The improving trend follows a 2% increase in August and flat performance in July. Management now believes the improved sales trend will allow operating margins to exceed the original 3% forecast for the year, with significant upside potential occurring over the remainder of 2009. Additionally, management noted that business has picked up across the board in the wholesale divisions over the past 3 to 6 weeks. At Macy’s, PVH’s business is “very strong” with AUR’s tracking above expectations as well as reorders.


  • Our meeting with DKS last week revealed some interesting facts about the company’s key competitor in Texas, Academy Sports. The privately held retailer currently operates 110 stores of which 73 are in Texas. DKS management believes Academy is generating almost $2 billion in annual sales out of its prototypical 80-100k/sq ft stores. While heavily concentrated in Texas, Academy recently opened distribution facilities in the Atlanta area to support eastern expansion in states including TN, NC, and KY.





-Price concerns are driving sourcing executives out of China and into neighboring countries - China is still the easiest place for companies to source because it is so well established, but it is no longer the most cost effective, an increasingly important element of sourcing decisions in the current economy, production specialists said. As a result of the search for lower-cost alternatives, companies are beginning to source more from countries such as Vietnam, Bangladesh and Pakistan, said Munir Mashooqullah, principal and founder of Synergies Worldwide, a sourcing firm with more than 50 clients. “You have to work to find the right factory because the obvious ones are not going to fit into the pricing model which is required in 2009 and 2010,” Mashooqullah said. Imports from Vietnam and Bangladesh are outperforming most other countries year-to-date, according to the Commerce Department’s Office of Textiles & Apparel.  Bangladesh and Pakistan manufacture mostly basic, commodity items, while Vietnam produces a product mix similar to China’s, but with a lower labor rate. <>


-The trade relationship between the U.S. and China has entered a complex and contentious new stage - With tensions escalating over President Obama’s decision to impose tariffs on Chinese tire imports at the behest of a powerful labor group, the two countries have ended a relatively stable period of trade relations. The U.S. and China share one of the largest commercial relationships in the world — China is the second largest trading partner of the U.S. behind Canada — while being on opposite ends of the political spectrum: leader of the free world versus most populated country long run by Communist dictatorship. But the trade balance between the two countries has been lopsided for years, with the U.S. posting record deficits, often prompting calls at home for protectionist actions against China. The U.S.-Sino trade relationship also presents significant exposure for the fashion industry, which imported $37.93 billion of apparel and textiles from China in 2008. <>


-As if luxury brands didn’t have enough problems coping with the global recession, they now have to battle two perceptions: commoditization and declining quality -According to a recent survey by the Luxury Institute, 48% said luxury products are too accessible and are no longer exclusive; 40% believed luxury brands are becoming a commodity, and 52% said luxury brands that also sell products for mass consumers are no longer luxury brands. And while superior quality and craftsmanship continue to be attributes most associated with luxury brands, a large percentage of wealthy consumers perceive that those characteristics are being delivered worse today than in years past. Looking ahead to the balance of the year, just 7% of wealthy consumers in the survey said they will spend more on luxury goods and services, although 21 % said they are likely to spend more on discounted goods and services. Of those who will be spending their cash, 55% said they will buy more of what they need rather than what they want. <>


-The pressure is building for holiday - Consumer behavior is the X factor, and if the recent past is any indication, shoppers will demand value and put off purchases on the expectation that stores will blink and cut prices. Moody’s Investors Service said in a recent research note that department stores — even with inventories more in line with sales than during the depths of the recession a year ago and despite better than expected first-half earnings — are likely to beat the discount drum for holiday. “We believe there is a high risk that the American consumer will have a ‘discount staring contest’ with the department stores by delaying purchases until they see a level of discounts that they believe offers them value,” the ratings agency said. “We believe that the department stores will likely blink first by opting to quickly mark down rather than risk having the inventory left over after the holiday season.”  <>


-UK Retail chiefs warned that retailers face further pressures on consumer spending throughout 2010 - New Look chief executive Carl McPhail said: “I’m not convinced we’ll see a recovery in the early part of next year as there will still be pressures, not least from unemployment, and our research shows customers are all concerned about that.” McPhail’s comments are included in a survey commissioned by PR firm Kreab Gavin Anderson, which found many retailers believe the consumer market will not pick up until 2011. Just over a third of those questioned – 34% - are not anticipating strong growth until 2011 or even later. Just 13% expected the consumer market to pick up significantly this year. And nearly all – 94% - said they expected a slow recovery as tax rises squeeze shoppers’ disposable income. Despite fears, two-thirds said they were more positive than seven months ago as fears of economic Armageddon had not emerged. Retail bosses also warned that Christmas would be flat this year. Rose said: “It will be a roller-coaster. Last Christmas was exceptional in terms of the global economic environment. This year there will be less background noise but a bit more competition.” Andrew Higginson, chief executive of Tesco’s Retailing Services division, said the market will be “flat at best” for UK retailers over Christmas. He added: “I think the market will be flat at best at Christmas and part of that will be deflation. Although currency falls suggest we should see a bit of inflation I don’t think the competitive market will allow it.” <>


-Skate Footwear Growth Slows, but Performs for Back-to-School - Although skate shoe growth is showing some signs of softening, the category certainly is not in crash mode. Conversations within the industry as well as data from SportScanINFO indicates that what's occurring is a slowing in sales gains in the recessionary climate and perhaps a little maturity after several years of high-double digit growth for the category. Many feel that like many other footwear categories, the skate category is also showing some signs of struggling in the downturn as retailers remain cautious around inventory investments. The increasing popularity of canvas vulcanized shoes - which also carry a lower price than core skate shoes – is also said to be impacting the category. But as skate shoes are increasingly being used as casual shoes — and skate brands themselves move into other categories — many skate shoe insiders claim it's becoming more and more difficult to classify the skate category.  <


-SIA Releases 2009 Snow Sports Market Intelligence Report -  While the 2008-09 season will be remembered for the worst economic conditions since the Great Depression, snow sports participation was healthy and some categories of equipment, apparel and accessories grew. 2008-09 Sales: $2.8 billion in sales of snow sports equipment, apparel, and accessories from specialty shops and Internet sales. Category breakdown: $760 million in equipment, $1.1 billion in apparel, $951 million in accessories. Adult high performance alpine ski boots were a hot trend, with an increase of 16% in units sold and an additional $11 million in sales. Online sales grew 12% in dollars and 23% in units $547 million total Internet sales were recorded 15% of all snowboard equipment was sold online. 2008-09 Demographics/Participation: 1 in 14 of Americans consider themselves to be skiers or riders, 14.8 million Americans participated in a snow sport in 2008, The average snow sports participant is about 30 years old, has a college degree and household income exceeding $100,000 annually, 1 in 5 female snowboarders are over 35 years old and plenty of girls are in the pipeline, the snow sports demographic experienced a doubling in unemployment rate during the 2008.09 season as the economy tanked. <>


-Hermes CEO Sees No Light in `Tunnel' This Year on Weak Japanese Recovery - Hermes International SCA Chief Executive Officer Patrick Thomas said he isn’t optimistic about the next six months because of a delayed economic recovery in Japan, the French luxury-goods maker’s biggest market.  <>


-U.K. August Online Sales Climb More Than Expected on Clothing Demand - U.K. online retail sales climbed more than expected in August as shoppers, lured by competitive pricing and improved returns policies, spent more money on clothing and electrical goods. <>


-Newsweek ranks America's retail companies by their environmental considerations - Top 10 Green Rankings of 2009: Kohl's, Staples, Gap, JC Penney, Macy's, Wal*Mart, Best Buy, Whole Foods Market, Limited Brands, Target.  <>


-The TJX Cos. Inc. board on Monday approved a new stock buyback program  - The $1 billion represents about 6.2% of the off-price retailer’s outstanding common stock at current prices, the company said. TJX, which is based in Framingham, Mass., said it expects to buy back $625 million of stock in fiscal 2010. The latest repurchase is the company’s 10th since 1997.  <>


-Scott Sible, the president of the Merrell and Chaco brands at Wolverine World Wide, plans to retire at the end of the year - Sible took over at Merrell domestically in November of 2002 when he was promoted to VP and general manager for the U.S. Merrell performance footwear operations at WWW. <>


-Stride Rite Corp. unit will now do business under the name Collective Brands Performance + Lifestyle Group - The name change is meant to better reflect and communicate the range of performance and lifestyle brands comprising the company and its new business model. Collective Brands Performance + Lifestyle Group includes Sperry Top-Sider, Saucony, Keds and the Stride Rite Children’s Group that encompasses Stride Rite, Robeez, Keds Kids, Saucony Kids and Sperry Top-Sider Kids. The children’s group labels are sold through Stride Rite stores and wholesale partners. Collective Brands Performance + Lifestyle Group is headquartered in Lexington, Mass. <>


-Christian Louboutin and Jimmy Choo were shoe winners of the Emmy's - The long flowing trains often made it hard to pick out the shoes during the 61st Annual 2009 Primetime Emmy Awards on Sunday, but from what we can tell, Christian Louboutin and Jimmy Choo were the clear winners of the night. <>




RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): AMZN


09/21/2009 10:30 AM


Runkle's duration on this short call is longer than what this company is setting up to print for the quarter. The math is telling me to get out of the way for this quarter, so I will. KM







JWN: Margaret Myers, EVP, sold 13,764shs ($433k) upon exercising the right to buy 13,764 shares nearly 50% of total common holdings.


DKS: Jeff Hennion, EVP – Chief Marketing Officer, sold 10,000shs (~$230k) upon exercising the right to buy 10,000 shares less than 20% of total common holdings.


ROST: Michael Balmuth, Vice Chairman, President & CEO, sold 17,457shs (~$840k) upon exercising the right to buy 17,457 shares less than 5% of total common holdings.



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.43%
  • SHORT SIGNALS 78.35%

Pressure Players

“Pressure is something you feel when you don't know what the hell you're doing.”
-Peyton Manning

The #1 headline on Bloomberg this morning is “Stocks Climb as Dollar Declines on Economy; Oil, Copper Gain”…
If you pressed your shorts yesterday and/or didn’t buy anything on US Dollar inspired stock market weakness (the USD was UP all day), you’ll be feeling some macro pressure in your portfolio today. US Dollar bearishness is definitely consensus now, but that doesn’t mean it can’t persist. We’ve seen the game tapes. We know how to manage this dominant risk.
In early morning trading, the US Dollar is getting smoked again, trading down almost a full percentage point right back down to its year-to-date lows. Lower-lows in the Burning Buck will likely equate to higher-highs in the US stock market. The Nasdaq already registered a new YTD high last night. The SP500 needs to close above 1068 today in order to register another win.
Winning is what accountable professionals who have a repeatable process do. Losers point fingers, and we are seeing plenty of those on Wall Street these days. In The New Reality of American Finance, losers can’t hide from the You Tube anymore. This is good. No more Wizard of Oz. The industry is evolving. This is long overdue.
Within 12 seconds of last night’s Monday Night Football game against Miami, Peyton Manning put a ball in the end zone and was up 7-0. Manning isn’t everyone’s favorite player in the league. Some of his quotes (like the aforementioned one) don’t make him everyone’s best friend either but, come Game Time, who really cares ? The man is prepared to play, at the highest professional level, every game of his life.
Only on Wall Street are you not necessarily allowed to behave like the professional athlete that you’d like to be. Particularly if you are on the “sell side”, you are supposed to be subservient, always reminding the “buy side” how “smart” they are. To some extent, this behavior is predictable. After all, the buy side pays the bills.
Having been on the buy side for almost a decade, and now spending some time selling my wares, I’d have to say that the long standing sell siders who haven’t evolved in this business should stick with that loser strategy. Hang on to the old dreams and commission streams boys. It’s all you can do.
What this industry needs is change, and a lot more of it. We want Pressure Players who aren’t sell side or buy side. We want Pressure Players who are delivering on the Right Side. If you wake-up every morning in this business under pressure to point fingers, as Manning would say, “you don’t know what the hell you are doing.”
Aggressive start to the morning Mr. Mucker? Yeah, that’s me. And I’m not ashamed of it. We wake up early here at Research Edge, expecting to win.
Back to our pre-game preparation. Most Portfolio Managers who continue to crush it in this New Reality of Risk Management know that preparing for this morning starts with all of the moves you made in your portfolio on the game day prior. Yesterday, in our Virtual Portfolio, I only bought and covered positions. I covered 3 shorts (CCL, AMZN and AAPL), I bought 1 country (EWG, Germany), I bought one Sector (SMH, Semiconductors), and I bought 1 stock (SONC).
Why buy/cover on red?
1.       The US Dollar was UP. Until buying/covering on USD UP days stops working, I’ll keep running the same play right up the middle.

2.       Volume was DOWN. Decelerating volume on market down days, and accelerating volume on market up days is bullish.

3.       Volatility (as measured by the VIX) remained broken across all 3 of my investment durations. PM’s still aren’t bullish enough.

Like a simple 3-hut count, and putting the ball down field for another 6 yard gain, that simple 3-factor model works. Until it stops working, why wouldn’t we just keep running the play?
We can get upset about the US Government Burning our currency. We can point fingers. We can even make excuses as to why all this can’t be a “fundamental” rally in the US stock market…
But that’s not going to change the score folks. It’s real-time, and it’s up on the scoreboard. Don’t complain about the weather or injuries. Just understand the game that you are in and deal with it.
This morning’s risk in the US stock market no longer supersedes the reward (it did yesterday). Today is a new Game Day. Today, the reward of going long outruns the risk. I have immediate term upside in the SP500 at 1078 (a higher-high) and immediate term TRADE downside support at 1054 (a higher-low). There is still 2.5 hours to Game Time. Let’s come out of the box with the confidence that all proactively prepared professionals should be playing with. Pressure Players expect to win.
Best of luck out there today,




SMH – Semiconductor HOLDRs We bought the semiconductor index on 9/21. We see demand creeping back with the book-to-bill ratio breaking 1 over the last two months.

EWG – iShares Germany Chancellor Merkel has shown leadership in the economic downturn, from a measured stimulus package and balanced budget to timely incentives such as the auto rebate program. We believe that Germany’s powerful manufacturing capacity remains a primary structural advantage; with fundamentals improving in a low CPI/interest rate environment, we expect slow but steady economic improvement from Europe’s largest economy. Merkel looks to be in the driver’s seat for re-election on September 27th, while her coalition partners are less certain.

CAF – Morgan Stanley China Fund A closed-end fund providing exposure to the Shanghai A share market, we use CAF tactically to ride the more volatile domestic equity market instead of the shares listed in Hong Kong. To date the Chinese have shown leadership and a proactive response to the global recession, and now their number one priority is to offset contracting external demand with domestic growth. Although this process will inevitably come at a steep cost, we still see this as the best catalyst for economic growth globally and are long going into the celebration of the 60th Anniversary of the People’s Republic.

GLD – SPDR Gold We bought back our long standing bullish position on gold on a down day on 9/14 with the threat of US centric stagflation heightening.   

XLV – SPDR Healthcare We’re finally getting the correction we’ve been calling for in Healthcare. It’s a good one to buy into. Our Healthcare sector head Tom Tobin remains bullish on fading the “public plan” at a price.

EWH – iShares Hong Kong
The current lower volatility in the Hang Seng (versus the Shanghai composite) creates a more tolerable trading range in the intermediate term and a greater degree of tactical confidence.  

CYB – WisdomTree Dreyfus Chinese Yuan The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

TIP – iShares TIPS The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield. We believe that future inflation expectations are currently mispriced and that TIPS are a efficient way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

LQD – iShares Corporate Bonds
Corporate bonds have had a huge move off their 2008 lows and we expect with the eventual rising of interest rates that bonds will give some of that move back. Shorting ahead of Q4 cost of capital heightening as access to capital tightens.

EWU – iShares UK We’re bearish on the UK’s leadership and monetary policy to weather its economic downturn. Although we’re seeing improved fundamentals within the country and across Europe we continue to see the country’s financial leverage as a headwind and increasingly the data suggests that inflation is getting ahead of growth. We shorted EWU on 9/9.

DIA  – Diamonds Trust We shorted the Dow on 9/3.  In the US, we want to be long the Nasdaq (liquidity) and short the Dow (financial leverage).

EWJ – iShares Japan While a sweeping victory for the Democratic Party of Japan has ended over 50 years of rule by the LDP bringing some hope to voters; the new leadership  appears, if anything, to have a less developed recovery plan than their predecessors. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands.

SHY – iShares 1-3 Year Treasury Bonds  If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.



The L’Arc casino, owned by Stanley Ho’s Sociedade de Jogos de Macau (SJM) was inaugurated Monday in Macau.  The cost of the project is estimated to be US$352 million.  The new casino opened with over 100 mass tables, 50 VIP tables, and 400 slot machines.  The casino is situated within the L’Arc New World Hotel, a five-star unit with 301 rooms and 39 suites that covers 7,128 square meters.  SJM now operates 20 of Macau’s 33 casinos.


L’Arc represents a 3% and 4% increase to the Mass and VIP table count, respectively, in Macau.




Macau is to limit the commissions paid to junket operators to 1.25% of the VIP chips.  The policy will be implemented with current and future commissions, according to Francis Tam, Macau’s secretary for economics and finance in the government gazette yesterday.  Macau’s six gaming concessionaires lobbied the government for the change. The commission cap will cut casino operators’ costs.

Wage Inflation, not Deflation...

We have recently received several questions about the economic impact of wage increases.


In the charts below we show how the Average Hourly Earnings estimated by the Department of Labor has increased significantly on both a dollar and year-over-year basis. This reflects the significant increase in minimum wage among other things, and it is our view that as AHE continues to trend upwards it can only be additive to our call on Q4 accelerating inflation.


Wage Inflation, not Deflation...  - a1


Wage Inflation, not Deflation...  - a2


Although, on the margin, this is an inflationary factor, it would be wrong to interpret the data too broadly.  The total number of individuals who received a raise directly as a result of the increased minimum is estimated by some think tanks at as few as  4.5 Million, and that population will likely be heavily weighted in labor intensive portions of the service and manufacturing industries rather than spread across the economy as a whole.


Conference Board Manufacturing data for instance suggests that per-unit labor peaked at year end 08 and then fell off during the first half as layoffs continued and capacity remained slack–meaning that as wages have increased, total employment has declined and that the aggregate labor costs for industrials has been flat to negative.


Andrew Barber